Please do all problems by hand rather than using a computer

$1.25 $1.63 S50 a. Draw the payoff diagram for a long position in the call option. b. Draw the payoff diagram for a short position in the call option. c. Draw the payoff diagram for a long position in the put option d. Draw the payoff diagram for a short position in the put option. 2. In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a zero NPV for both the insured and the insurer. As such, the present value of the expected loss is the actuarially fair insurance premium. Suppose your company wants to insure a building worth $245 million. The probability of loss is 1.25 percent in one year, and the relevant discount rate is 4 percent. suppose that you can make modifications to the bulling that will reduce the probability of a loss to 90 percent. How much would you be willing to pay for these modifications? 3. ABC Company and xYZ Company need to raise funds to pay for capital improvements at their manufacturing plants. ABC Company is a well-established firm with an excellent credit rating in the debt market, it can history. It can borrow funds either at a 10 percent fixed rate or at LIBOR+3 percent floating rate. funds either at an 11 percent fxed rate or at LIBOR+ 1 percent floating rate. XYZ Company is a fledgling start-up firm without a strong credit a. Is there an opportunity here for ABC and XYZ to benefit by means of an interest rate swap? b. Suppose you've just been hired at a bank that acts as a dealer in the swaps market, and your boss has shown you the borrowing rate information for your clients ABC and XYZ Describe how you could bring these two companies together in an interest rate swap that would make both firms better off while netting your bank a 2.0 percent profit 4. Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $85 Vol. 230 170 2.80 6.00 8.50 1 Mar 127 1.40 Jul 2